European Council

John Redwood Excerpts

Thursday 26th January 2012 Commons Chamber

[Mike Gapes]

If my hon. Friend looks at Hansard, he will see that I was not blaming Britain for the problems in the eurozone, but saying correctly that our influence in the European Union will be reduced because of the misguided tactics adopted by the Prime Minister.

[Mr John Redwood (Wokingham) (Con)]

Will the hon. Gentleman give way?

[Mike Gapes]

I will make some progress first.

As a result of the European Union Act 2011, the Prime Minister has boxed himself into a position in which there must be no potential for a referendum in this country. As he was trying to assuage his 81 Europhobic Back Benchers, he took the easy option of making a political decision rather than one in the national interest, which would have been to remain in the negotiations and to carry on trying to influence the outcome. As a result, when discussions conclude on the arrangements, if they are based on the fourth draft agreement—I quote the House of Commons Library Paper—

“the Heads of State or Government of contracting parties whose currency is not the euro who have ratified this Treaty and have declared their intention to be bound by some of its provisions”

would be invited

“to a meeting of the Euro Summit”.

However, those who did not agree to the intention to be bound by the provisions and were not participating would have no automatic right to attend. The Library paper states:

“This would appear to exclude the UK as a non-Euro, but crucially also a non-contracting State.”

There is a potential, therefore, for us no longer to be in the room, even as an observer, because of our misguided decision in December to walk away from the process.

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[Mike Gapes]

I suspect that when the eurozone finally resolves the crisis, whether this week, which is doubtful, or on 1 and 2 March, which might be more likely, and when the 20 or so countries—perhaps 25 or 26, depending on how many of the existing 17 euro countries and the others eventually sign up to the package—agree to abide by the provisions, our influence will cease to be as strong as it has been. As a result, one other thing will develop: the pre-meeting discussions that take place within the European People’s party network, the conservative group that dominates the politics of the European Union—the right of centre, not the left of centre, are in control in the EU—the Sarkozy-Merkel meetings, or meetings involving Poland and the new right-wing Government in Spain, will not include the UK. When the bigger countries pre-cook the agendas, we will not be there and we will not be heard. That is potentially very dangerous.

[Mr Redwood]

Does the hon. Gentleman not understand that one has to pay to play? If we were in the room, the other countries would expect us to divvy up, as they are short of money.

[Mike Gapes]

More than half our trade is with the European Union. Our companies, and the future of the City of London and its relationship with the eurozone economy, are greatly affected by what happens in Europe. Those who want to move out to the middle of the Atlantic or who believe that somehow we can reinvigorate the Commonwealth and go back to imperial preference, are not living in the real world for the British economy. Our national interest is to have prosperity and success. As the Chancellor of the Exchequer has made clear, it is in Britain’s national interest for the eurozone to succeed and for the current crisis to be resolved. Clearly, Conservative Members do not agree with the Chancellor’s words. They wish to see the eurozone fail—[Hon. Members: “Rubbish!”] Well, the hon. Member for Gainsborough (Mr Leigh) seemed to say that. If he disagrees, he can intervene again. They want to see the eurozone fail because they believe that somehow that will be in the national interest of this country. It will not.

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[Damian Collins]

The problem with the stability rules has been that when there should have been interventions or challenges the opportunity has been ducked. That has allowed countries to fudge the rules, has made a shambles of the stability pact and has undoubtedly led to the crisis we face now. It demonstrates something that many hon. Members have known for a very long time: this was primarily a political project and the objective was to get as many countries in as possible and to keep them in whatever the cost, even if the cost was to the member states.

The other point made by the hon. Member for Rhondda (Chris Bryant) was about the concern in member states about whether staying in the euro is good for them or not. Since the December Council we have seen a greater understanding of what staying in the euro will mean. In effect, as my hon. Friend the Member for Stone (Mr Cash) said in his speech, it will mean that the European Commission will decide on budgets for member states, on debt levels and on spending and will enforce measures through the European Court to correct those states if they do not comply. The price of continued membership of the eurozone will then look increasingly high. I believe that might lead some countries to question whether to stay in—or, perhaps, the markets will make that decision for them. No doubt the events of the next few months will give us a good idea of how that will play out.

The challenge is for Europe not to continue as a fortress Europe, but, instead, to be a market Europe that looks to open itself up to the world. That is the best thing for its competitiveness and prosperity and for the future of all its citizens.

This month, the European Council published “The European Council in 2011” , which looks back at the previous year. The President of the Council, Mr Van Rompuy, said that

“we can draw confidence from the political will we mustered in the past year”.

I am glad that one person in Europe draws confidence from the political will mustered by the European Council, because I think most people see a failure of leadership and a great deal of concern about the effectiveness of that body to lead in the future.

In the same chapter of the book, which is entitled “The road ahead”, Mr Van Rompuy goes on to say:

“The key for the future is to harness the forces of change.”

I believe that is right: Europe needs to harness the forces of change. That requires a change of direction, however, rather than acceleration down the old worn path, which is where it is heading.

The document also states that the level of economic integration—in effect, the creation of a common economic policy—will remain high on the agenda for the European Council this year. It states:

“‘Member States shall regard their economic policies as a matter of common concern’. In 2012, we will further examine a deepening of our economic union, a subject on which I will report to the March European Council.”

It goes on to say:

“We must demonstrate that the euro is more than a currency: an irreversible project, a common destiny.”

That underlines the concerns that many of us have had for some time that the leaders of the European Council and leaders in Europe have been blinded by the political objectives behind the euro to whether it is truly sustainable for those countries.

Hon. Members have already remarked that trade is an important part of our membership of the European Union and that half of our trade is with the EU. That is true, but UK trade figures for the past 10 years show that the growth comes from trade not with the member states of the European Union but with the emerging consumer markets around the world, in Brazil, Russia, China and India. That is common in countries such as Germany, too, because as the world economy grows and there are more consumers, we need to be in the market competing for their goods and services.

[Mr Redwood]

Does my hon. Friend recognise that because of the Rotterdam entrepot effect of goods going through that port to other parts of the world and because of large service exports to non-EU countries, the true figure is under a third? It is nowhere near half.

[Damian Collins]

I thank my right hon. Friend for that important contribution. It follows my point that the future of our trade and growth will increasingly lie beyond the borders of the EU and not solely within it. That should not make us any less European; we must simply recognise that the world economy is growing, that it is growing outside the EU and that those economies are increasingly competitive. They have more consumers with more money in their pockets and more demand for the products we can sell. Our challenge, and that for Europe, is to make ourselves open to those markets. Rather than having European rules and regulations, particularly on social and environmental law, that seek to add costs and make us less competitive, we should review them and consider whether they are truly fit for the modern world in which we live. That would give us the chance to compete in this more competitive and growing global economy.

That is the crisis that Europe faces as it reaches its crossroads. Its rules and regulations have created a union that is less competitive than it should be and more weighed down with debt. Currency union has not supported the weaker countries but has emboldened and added weight to the strength of those already strong economies, such as Germany. Those fundamental issues must be addressed as Europe faces its crisis. I believe that they are the issues that the Council must tackle. It will require a more flexible and open Europe in which, I believe, the UK can act as a fellow traveller, setting the course of direction. We must be very clear that if Europe will not move and will not change, we cannot afford to be held back by it.

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[Mr MacShane]

I am very happy to hear the hon. Gentleman gloss over his speech, but that is the point I was making.

I am all for exporting to the BRICs, but their growth rates are slowing. India is talking about a return to “Hindu economic growth” and China might go as low as 8% or 7%, which is a real worry for the Chinese authorities. The same is the case in Brazil—[Interruption.] Hon. Members say that that is not bad and, of course, I would love a 7% growth rate for my own country, and I shall come to that. However, rapidly developing countries throughout history have had very high growth rates when peasants and others move from the fields and core industries are developed, but the plain fact is that we export more to Ireland than to all the BRICs combined. Belgium exports more to India than we do. The absurd notion that Brazil, India or Russia, run by kleptocrats, are an alternative to the mature, balanced, middle-class consumer economies of the European Union is not right.

[Mr Redwood]

Does not the hon. Gentleman understand that the markets that feed and clothe him are the people? The markets we are talking about today are his pension savings, his other savings and those of millions of other people who are trying to protect themselves from the euro disaster.

[Mr MacShane]

I do not really want to get into a debate about the markets as I am also pro-market, but the markets are also Mr Hester, the hedge fund billionaires and the donors to the Conservative party who make a fortune out of speculation and who have so increased inequalities in the past 30 years that we now have a generalised social crisis that might cause severe dislocation.

I do not share the cataclysmic views that some have about what the Prime Minister did on 9 December. I think he was ill-advised, that he allowed the Treasury to run the negotiations and that the key decision was taken at a time—2.30 am—when no sane person should take a decision. None the less, the plain fact is that across the rest of the European Union there is a sense that Britain does not want to engage or be fully part of the EU. Last week, at a conference with the former French Defence Minister who negotiated the French side of the French-British defence treaty of 2010, I was surprised to hear his extraordinary, virulent attack on what one could call “Albion perfide” and how Britain was no longer a defence player with France, was not prepared to co-operate and was doing all it could, he said, to sabotage the good effects that the treaty would have. That is the reputation we have and that worries me.

It also worries me to hear reports that one of the new intake on the Government Benches, whom I shall not name, said in a conference over the weekend that it would have been impossible to have been selected as a Conservative candidate in recent years—or, indeed, to be a Conservative MP—without showing the most strident Euroscepticism. [Interruption.] Well, if there is an exception that proves the rule and if the hon. Member for South Swindon (Mr Buckland) is about to make a pro-European speech I shall welcome that. None the less, that is the impression in this country.

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[Martin Horwood (Cheltenham) (LD)]

First, I congratulate the Backbench Business Committee on selecting this topic for debate, although on this occasion I agree with the hon. Member for Stone (Mr Cash) that it might have been better to debate this issue in Government time as it is critical for this country.

While I am on the theme of congratulations, let me congratulate Sharon Bowles, MEP, on her recent re-election as chair of the economic and monetary affairs committee of the European Parliament. She was once voted one of the top 10 economic regulators in the world and she has presided over innovations such as the attempt to introduce regulation on bankers’ bonuses that would prevent someone like Fred the Shred from ever again walking away with a huge bonus from a failing bank. For that alone she deserves congratulation and I am pleased to see her retaining her place as one of the most influential Liberal Democrats in Europe.

I repeat my earlier congratulations to the Deputy Prime Minister on convening the European Liberal leaders forum on issues relating specifically to this debate in London on 9 January. The forum agreed a programme of reform and competitiveness for Europe that would probably unite Conservative and Liberal Democrat Members of this House at least. That is a good example of how to build alliances across Europe and engage with Europe in a proactive way.

It is good to see Britain at the table for the summit. Clearly, there is the main summit, which is supposed to be focusing on prosperity and growth, but there is also the rather important sideshow of the 26 making further progress towards the fiscal compact, which is critical for Britain, and I am very pleased that the Government have made sure that Britain is an active participant in the process, albeit with observer status. I know that Ministers have been active behind the scenes getting Britain involved in the process and making sure, for instance, that the fiscal compact treaty does not spill over into areas outside its proper remit, such as the construction of the single market. As Liberal Democrats have pointed out, that is one of the risks of our relatively isolated situation in Europe.

[Mr Redwood]

Does the hon. Gentleman think that at this point the power to fine Greece and then fining her would cut the Greek deficit?

[Martin Horwood]

I shall not be drawn into that. Critically, it is for the eurozone countries to address the crisis in the eurozone. The right hon. Gentleman highlights the important point that just by drawing up a treaty the eurozone countries do not solve some of the rather fundamental problems in the eurozone. In fact, the situation in Greece is becoming increasingly serious and it needs to be urgently addressed—that is even more the case now than in recent months.

The importance of the main business of the summit must not be neglected. Britain’s re-engagement in European affairs is critical and it must be pushed forward. There have already been some successes. My right hon. Friend the Secretary of State for Business, Innovation and Skills helped to create the like-minded growth group, which has pushed forward ideas such as lifting onerous accounting rules from the smallest businesses in this country. I think the group has helped to create a shift in Commission attitudes on the smallest businesses to the point where it has committed to review all existing EU legislation to look for other opportunities to lift onerous regulation from such businesses and to screen new legislation to see whether, wherever possible, the smallest businesses can be excluded. That is exactly the kind of agenda we should be pushing in Europe.

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[Mr John Redwood (Wokingham) (Con)]

I rise to support the Prime Minister. I think he had no alternative but to say no to a very unsatisfactory deal and to a totally inappropriate proposed measure at that Council. Nor do I think he has lost Britain influence by doing it; I think he has won Britain influence by doing it. We learned subsequently that several non-euro member states could not go along with the draft any more than the United Kingdom could. We also learned subsequently that France, Germany and others are now beating a path to the United Kingdom Foreign Office door, trying to get us back on board, trying to woo us because we had the courage to say no.

We meet today because we wish to influence our Government in what they are doing at yet another important European summit. The European Central Bank has bought the Europeans a little time by printing and lending unprecedented sums of money to a very weak European banking system, but those meeting would be wise to understand that that has only bought a little time; it has not solved the underlying problem. Indeed, there are two underlying problems. There is the inability of the southern countries to compete with Germany at the fixed exchange rate within the euro, making them poor and giving them large balance of payments deficits which they have trouble financing; and there is the big problem of the southern states’ debt getting ever bigger. As their economies are malfunctioning, because so many people are out of work and because they cannot price themselves back into jobs, their debts and deficits go on soaring, and now in three cases member states of the euro area cannot finance those deficits in the normal way and have to be on life support from the EU and the IMF.

[Martin Horwood]

On the subject of the right hon. Gentleman’s support for the Prime Minister, will he join me in welcoming the Prime Minister’s remarks this morning in Davos, when he said,

“Let me be clear. To those who think that not signing the treaty means Britain is somehow walking away from Europe let me tell you, nothing could be further from the truth”?

[Mr Redwood]

Of course the Prime Minister is right that we are in the European Union and all the time we remain in it we have to use our membership as best we can to protect the interests of the British people.

The main purpose of the summit must be to try to deliver greater prosperity and some growth and some hope to the peoples of Europe, because their hope has been depressed and their prosperity is being destroyed by a system that cannot conceivably work. The euro area is now locked into a system of mutually assured deflation, a mad policy, and the more those countries’ economies decline, the more the deficits go up, the more they have to cut. They cannot get themselves out by monetary means, in the way that the United Kingdom and the United States can, by creating more money in their system, and they cannot get out by having a competitive exchange rate.

[Mike Gapes]

rose—

[Mr Redwood]

I am sure that was the point that the hon. Gentleman wanted to make.

[Mike Gapes]

If the right hon. Gentleman is so against the austerity deflation policies in the eurozone, why is he supporting the austerity policies of his own Government?

[Mr Redwood]

As I just explained, it is totally different if a country has its own currency and can use monetary mechanisms to try to grow its way out of the problems, and can establish an exchange rate that allows it to export its way out of the problems, which is exactly what these countries have to do, yet are unable to do because they are locked in.

[Mr MacShane]

rose—

[Mr Redwood]

I have no more injury time available, so I need to develop my argument rapidly.

If those countries are to have some hope of prosperity, they need to solve the two underlying problems. It is obvious to most external observers that the way to solve the problem of competitiveness quickly is to devalue. Normally, an IMF programme for a country in trouble not only asks it to cut its budget deficit and reduce its excess public spending, but suggests that it devalue its currency and move to a looser monetary policy domestically, so that there can be private sector-led growth, export-led growth—the kind of thing it needs to get out of its disastrous position. That is exactly what those countries are unable to do. That is why the IMF should not lend a country such as Greece a single euro or a single dollar. Greece is to the euro area as California is to the dollar area: it is not an independent sovereign state, and it cannot do two of the three things that a country needs to do to get back into growth and prosperity, because it cannot devalue and it cannot create enough credit and money within its own system.

We need to give honest advice to our partners and colleagues in the eurozone, around the European conference table—in private, not in public—that the only way forward, the only way to resolve the crisis for those countries that can no longer borrow in the marketplace at sensible rates of interest, is to have an orderly way of letting them out as quickly as possible, so that they can re-establish their own currency, their own looser and appropriate monetary policy and their own banking policy, and offer some hope to their subject peoples.

I am very worried that this is not only an economic crisis, a banking crisis, and a currency crisis, but also now a crisis of democracy. The challenge, in countries such as Greece and Spain, is how the Governments manage to get buy-in to the policy of deflation and cuts with everything that is the only offering from the euro scheme and the euro system. We see in some of these countries now that the electorates do not choose the Government; the European Union’s senior players choose the Government. We see in some of these countries that the electorate change the Government but they do not change the policy. The new Government have to pledge to follow exactly the same policy, which does not work, in order to get elected and to be acceptable to the European Union, in order to carry on drawing down the subsidies and loans from within the European Union that have to be on offer to try to make the system operate to some extent.

I hope that the British Government will adopt the following position. I hope that they will say in public, whenever asked about the euro, that the British Government have no intention of providing any running commentary on the euro whatever or of saying anything that makes the position of the euro worse, but will always give good, strong, independent advice in private. That should be the public position. It is too dangerous to say things. Most of the things that politicians say about bond markets and currency crises make the position worse, so the United Kingdom would be well advised to have a simple formula, which all Ministers use, that we are providing no commentary on the euro and we wish the euro members well in sorting it all out.

In private, we are important allies and partners of the euro area and the British Government need to give honest advice to try to get our continent out of this mess. I do not believe there is a single fix that can solve that problem for all the countries currently in the euro. Many of them went into the euro with inflation rates that were too high, with state deficits and debts that were too high, and with currencies that were not in line with the German currency. It was a huge error. The founders of the euro knew that there had to be very strict requirements; they broke them from day one.

It will not solve the problem to sign up to some new constitutional pact that says that a country down on its luck, unable to borrow money, running out of cash, will be fined. Who will pay the fine? The answer is that the fine would have to be lent to the country in trouble by the very people who are fining it. It is so preposterous that I find it very difficult to believe that serious people can sit round a table, negotiating such an instrument. They should cast aside the draft instrument. It is irrelevant; it cannot work. They should sit down in private and work out how to get non-competitive countries out of this mess before even more damage is done to their economies and their democracies.

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[Emma Reynolds]

My right hon. Friend makes a valid point. If the Prime Minister had not pulled his MEPs from the mainstream centre right in the European Parliament when he was Leader of the Opposition, he would have found that he had much more influence before the summit, because he would have been in Marseille for the European People’s party meeting in preparation for the European Council summit.

It is of real concern to the Opposition that by isolating the UK the Government have lost influence with our European partners and could lose influence over the single market. Deeper fiscal integration by the eurozone countries does not necessarily lead to the development of separate trade policies or separate decisions on the single market, but that could come about if the UK continues to lose influence.

I understand that the Polish Government are now seeking to secure a seat at the frequent eurozone summits—a logical negotiating position. If they are successful, they would then have a voice, even if they did not have vote, at eurozone summits. As it stands, our Government will be barred from such meetings, leaving the UK without a vote and without a voice, unable to guard against eurozone Heads of State and Government straying into areas of decision making that are relevant to the EU of 27.

[Mr Redwood]

Will the hon. Lady bring us up to date with Labour’s thinking on any vote that we might face in this House on money for the IMF to lend on to euroland countries in trouble?

[Emma Reynolds]

As the right hon. Gentleman knows, the Opposition voted against the IMF contribution last time. I think that he might have been in the Lobby with us. We think that the European central bank should be the lender of last resort and that IMF money should concentrate on countries with severe economic problems outside the eurozone.

The Prime Minister’s walk-out also resulted in risks to foreign direct investment. Businesses investing from the US and Asia have chosen the UK for their operations because it gives them access to European markets. But if the UK’s position in the single market were in doubt, foreign direct investment would also be under threat. Moreover, as the Deputy Prime Minister rightly said on the Sunday after the December Council, if the UK stands tall in Brussels, we stand tall in Washington. It is also true that if we stand tall in Brussels, we also stand tall in Beijing and the other major emerging economies. With economic power moving south and east, to countries the size of continents, it is nostalgic longing for the empire to think that the UK can go it alone. It was the Minister for Europe, in a recent Opposition day debate, who said that

“without the size of the EU behind us, the United Kingdom on its own is unlikely to be able to secure the same deep and ambitious free trade deals with other regions or trading countries around the world.”—[Official Report, 13 December 2011; Vol. 537, c. 724.]